Tele2 sees further gains in $3.5 billion sale of Russia unit

STOCKHOLM (Reuters) - Tele2 (TEL2b.ST) said it stood to gain more than the $3.5 billion price agreed for its Russian unit if the buyer sells it again within a year, as the Swedish telecoms group tries to fend off competing bids from industry rivals.

Tele2 Russia’s competitors MTS (MTB.N), Vimpelcom VIP.N and billionaire Mikhail Fridman’s A1 group are trying to overturn Tele2’s decision to sell the business to state-controlled bank VTB (VTBR.MM), hoping to get rid of a cut-price rival.

With 23 million subscribers, Tele2 Russia is the country’s fourth-biggest mobile operator after MTS, MegaFon OAO (MFON.MM) (MFONq.L) and Vimpelcom. Should it land in the hands of fifth-ranking Rostelecom - as some analysts have speculated - it would mean stronger competition to the bigger players.

Tele2 said the sale to VTB is effectively closed but MTS, Vimpelcom and Fridman’s A1 group are contesting it, launching their own bids, suggesting a Tele2 shareholder revolt and, in one case, threatening legal action.

Tele2 said on Tuesday its shareholders were in line for extra cash if VTB sold on the assets within a year.

“If VTB were ... to sell to another interested party for a higher price, we would be entitled to 50 percent,” said Lars Torstensson, group communications director at Tele2.

He said there was no way that Tele2 would go back on the deal with VTB and there was no break clause which would allow the company to revoke the agreement on payment of penalties.

“This deal is closed. It cannot be opened up,” he said. “We are waiting for regulatory approval.”

But Vimpelcom and MTS said their joint offer for Tele2 Russia still stood.

“We plan to proceed with our offer, which we believe offers greater value to the shareholders of Tele2,” said Vimpelcom spokesman Bobby Leach.

CONSOLIDATION

The $3.55 billion deal was structured as $2.4 billion in cash and $1.15 billion in debt, making it worth 4.9 times the unit’s 2012 EBITDA of 4.744 billion Swedish crowns ($729 million)”, according to Reuters data.

A1, the investment arm of Russian billionaire Mikhail Fridman, has offered $3.6-$4 billion for Tele2 Russia and may be interested in buying the whole of Tele2. It has also threatened Tele2 with legal action. <Id:nL5N0CL12N>

MTS and Vimpelcom have offered $4.0 billion to $4.25 billion for the assets.

MTS said it was “strange and dubious” for management and the board to ignore a financially superior offer.

But Kinnevik (KINVb.ST), Tele2’s biggest shareholder with a stake of 30.5 percent of its capital and 47.9 percent of the votes, fully supports the VTB deal.

Will James, manager of Standard Life’s European Equity Income Fund, which has a stake in Tele2, also backed it.

“I think this (the VTB deal) is a sensible move, a pragmatic move by a management and a board who are interested in creating shareholder value,” he said.

“The market generally felt that if they hung around too long they wouldn’t get an outcome that was particularly in the interest of shareholders.”